Is Emaar's IPO Worth A Look?

by: Khurram Aziz


Emaar Properties owns EMG. EMG is the developer of The Dubai Mall and the Burj Khalifa, the world's tallest building.

EMG has shown revenues of $340 million so far this year.

The government of Dubai is a major investor in Emaar.

Dubai needs an infusion of cash.

EMG is a solid company that may be helping to bring Dubai out of its financial crisis.

Emaar Properties, a Dubai-based Public Joint Stock Company (PJSC), has announced plans to launch the IPO of its malls business in September. The IPO is expected to sell at least 15 percent of the Emaar Malls Group (NYSE:EMG), and its purpose is to provide its shareholders with a dividend.

Since the announcement that the IPO would be set in September, Emaar values have been climbing. The news has brought an increase in the value of the company shares by about 15 percent. The first IPO will be followed by one in October, which will take the amount of the company offered for sale to approximately 25 percent.

This will be the largest IPO in the United Arab Emirates since the financial crisis of 2008, and reflects the area's financial recovery. Investment in the area has increased, as the UAE has emerged as one of the safest locations in the Middle East. Political unrest has touched most of the other countries in the region, and Dubai is hoping to regain strength in its tourism and property sectors.

A successful IPO could begin a trend in the region and assure investors that the worst of the financial crisis is past, and that further investment in Dubai, from the advice of, would be a secure proposition.

This sale will cut long-term profits with Emaar Properties by selling off part of its own stake in the unit. The primary reason that Emaar would do that is to provide a dividend to shareholders, of which the government of Dubai is a major one, at the cost of future profits. That type of short-sighted business would suggest that it is feeling pressure to pay something to its shareholders. Dubai is the single-largest shareholder in Emaar.

"The IPO of EMG is a milestone for the development of the UAE capital markets as, for the first time, it combines institutional and retail shareholders in the same offering on the DFM [Dubai Financial Market]," said Emaar Properties chairman, Mohamed Alabbar, to The Wall Street Journal.

If this sale signals an end to Dubai's cash flow problems, it would be a signal to the investment market that Dubai has gotten past the debt problems it has struggled with for the last six years. Dubai has been investing in its airports and hotels to attract tourism to the region. These efforts have increased the number of tourists to Dubai by about 10 percent in 2013.

EMG's investments include The Dubai Mall and Burj Khalifa, the world's tallest building. EMG had revenues of $340 million during the first six months of this year.

Taking advantage of the IPO is an easy choice to make. The stock value is not going to go down, especially if there is a second stock sale in October. EMG appears to be trying to raise money to keep its shareholders happy, even if that decision will dilute their control of the company.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.